Good day, and thank you for standing by. Welcome to the Option Care Health Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mike Shapiro, Chief Financial Officer. Please go ahead.

Good morning. Please note that today's discussion will include certain forward-looking statements that reflect our current assumptions and expectations, including those related to our future financial performance and industry and market conditions. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations. We encourage you to review the information in today's press release as well as in our Form 10-K filed with the SEC regarding the specific risks and uncertainties. We do not undertake any duty to update any forward-looking statements except as required by law. During the call, we will use non-GAAP financial measures when talking about the company's performance and financial condition. You can find additional information on these non-GAAP measures in this morning's press release posted on the Investor Relations portion of our website. With that, I'll turn the call over to John Rademacher, Chief Executive Officer.

Thanks, Mike, and good morning, everyone. To say that 2023 was an eventful year for Option Care Health is quite the understatement. It was a dynamic year for the team, and we advanced our mission to set the pace in home and alternate site infusion care and treat more patients by providing innovative services designed to improve outcomes, reduce costs, and deliver hope for our patients and their families. In 2023, we treated more than 270,000 distinct patients and expanded our portfolio of life-saving therapies through our collaboration with referral sources, payers, and biopharma partners. As always, Mike will dive into the financials in a few minutes, but I could not be more pleased with the effort, dedication, and results generated by my devoted colleagues at Option Care Health. For the full year, we delivered revenue of $4.3 billion representing 9.1% growth over the prior year. Adjusted EBITDA of $425 million represents 24% growth over 2022 and significantly exceeded the initial expectations we articulated in early 2023. Since the merger in August of 2019, the Option Care Health team has consistently delivered solid growth and met or exceeded our commitments to our shareholders. Reflecting back on 2023, beyond the solid financial results, I'd like to highlight a number of key accomplishments and milestones. In the second quarter, we launched Naven Health, one of the largest infusion nursing platforms in the industry comprised of more than 1,500 clinical professionals. Naven is a critical component in our mission to serve more patients, and strategically, the platform is vital to our continued success. We continue to invest in our ambulatory infusion suites footprint, and in 2023 we expanded our network to 164 suites and over 660 chairs nationwide. Again, this is a key investment strategy designed to enable continued growth while unlocking clinical labor efficiency. We advanced our use of advanced analytics and repetitive process automation within our pharmacy and revenue cycle management operations to reduce waste and improve cash velocity. We also recently announced our multi-year collaboration with Palantir to deploy their artificial intelligence technology across our operations to drive efficiencies and improve the patient experience. We launched a number of new therapies in 2023 through our collaborations with BioPharma, including VYJUVEK, VYVGART, and Cabenuva, to name a few. We believe our integrated international network of state-of-the-art pharmacies and expanded number of infusion suites combined with the clinical know-how and our leading technology platform continues to resonate with the biopharma partners and positions us well to continually expand our portfolio. Every member of the Option Care Health team understands that behind every dose is a loved one, and behind the scenes is a comprehensive team of pharmacists, pharmacy technicians, dietitians, infusion nurses, patient support professionals, and supply chain experts. Their focused dedication and collaboration help ensure that we deliver unparalleled care in the comfort and convenience of our patients' homes or in one of our infusion suites. Making certain we are an employer of choice and a destination for healthcare professionals is also critical to our continued success. In 2023, we were thrilled to have earned the designations of the Gallup Exceptional Workplace and a Military Friendly Employer. These recognitions affirm our relentless focus on recruiting our team every day and delivering extraordinary care to our patients. As the old saying goes, you can do well by doing good, and we believe that our financial results for 2023 demonstrate that we are doing just that. Exiting 2023, our balance sheet has never been stronger and our liquidity position is in great shape. During 2023, both S&P and Moody's upgraded our credit profile to the highest ratings yet. Our net debt leverage profile is well under 2x, and we generated more than $370 million in operating cash flow in 2023 and deployed $250 million towards the share repurchase. So reflecting on 2023, we continue to deliver strong growth while investing in this unique platform and our capabilities to enable sustainable growth. As we outlined in our 2024 guidance this morning, we expect to continue this trend of delivering strong financial performance as we grow and serve more patients. I've never been prouder of the Option Care Health team and the level of service that we deliver to our patients every single day, and I remain confident in the road ahead. With that, Mike will provide additional color on the results.

Thanks and good morning, everyone. As John mentioned, we're quite encouraged by the solid finish to 2023. Fourth quarter revenue of $1.124 billion represented 9.5% growth over Q4 of 2022. Performance was solid across the portfolio, and execution in the field was very strong. Full-year revenue of just over $4.3 billion was up 9.1% despite a number of headwinds we've talked about throughout the last year, including two exited therapies and the impact of the divested respiratory therapy asset. So overall, we're quite pleased with the top line performance. Q4 gross margin of 22% represented dollar growth of 6.9% as we saw some mix shift impact towards the chronic portfolio as well as a smaller procurement benefit in the quarter. In recent quarters, I've spoken about the favorable procurement dynamics that persisted in 2023, and in Q4, we estimate we realized approximately $8 million in benefit related to the dynamic. For the year, we estimate that we realized $33 million to $35 million of these transitory procurement benefits, which we believe will not continue into 2024. SG&A of $147.8 million actually declined versus Q4 of 2022, and spending leverage improved to 13.1% of revenue, which we believe affirms the scalability of the platform. Adjusted EBITDA of $111.6 million in Q4 represented 9.9% of revenue and was up 18.4% over the prior year. Again, Q4 adjusted EBITDA included roughly an $8 million procurement benefit. Beyond the P&L, we generated more than $370 million of cash flow from operations for the year, which again includes approximately $85 million from the Amedisys transaction termination fee net of related expenses. During the year, we deployed $250 million for share repurchases and still finished the year with approximately $344 million of cash on hand and a net leverage ratio of 1.8x. This is the fifth year-end that we have reported as Option Care Health, and reflecting back to 2019 when we completed the merger, we socialized the combined enterprise at the time as generating roughly $2.7 billion in revenue and roughly $200 million in pro forma adjusted EBITDA. Four years later, we've increased revenue by 50% to $4.3 billion and more than doubled adjusted EBITDA to $425 million. We've also driven dramatic improvements in our balance sheet, reduced the leverage profile by more than two-thirds from 6.2x to 1.8x, and slashed net interest expense by more than half from $110 million to $51 million. And while we're proud of how far we've come, we're equally excited about the road ahead. As disclosed in this morning's press release, we anticipate delivering another year of solid growth for our shareholders. In 2024, we expect to generate revenue of $4.6 billion to $4.8 billion. We expect to generate adjusted EBITDA of $425 million to $450 million. And we expect to generate cash flow from operations of at least $300 million. To provide some additional data points, we expect net interest expense of $55 million to $60 million, approximately $45 million in stock comp expense, and an effective tax rate of 26% to 28%. So overall, 2023 was a very productive year, and we expect to continue our track record of leveraged growth into 2024. With that, we're happy to take your questions.

Our first question comes from Lisa Gill with JPMorgan. Your line is now open.

Thanks very much and good morning and congratulations. Just really want to understand a couple of things a little bit better as we think about 2024. And the first would be just the mix. So I think, Mike, you noted in the quarter stronger growth in chronic versus acute, which had an impact on the mix. How do we think about mix going forward would be my first question? And then secondly, as it plays into that, how do we think about the swing factor between the $425 million and $450 million on the EBITDA line for guidance?

Good morning, Lisa, I'll start here. As we have mentioned, we expect the chronic portfolio to grow in the low double digits, while the acute therapies are in a more mature stage, growing in the low single digits. In 2023 and 2022, we experienced some notable market shifts due to competitive closures that boosted reported acute growth. As we enter 2024, unless we face significant disruptions or changes like the exit therapies we've discussed, we anticipate a return to the underlying growth trends in these therapies. This means the acute category will continue to grow in the low single digits, whereas the chronic therapies will grow in low double digits. Since the chronic therapies generally have a lower gross margin, we foresee a shift towards lower profitability in that area. We aim to enhance dollar growth and manage every basis point effectively. Regarding the $425 million to $450 million range, there are various factors at play. We have new therapies that we are still in the process of ramping up. On the acute side, the treatment duration is between two to six weeks, and we have yet to reach many of the acute patients we will have the opportunity to treat this year. Additionally, we are navigating numerous variables in procurement, payer relations, and local competition. Therefore, I would only attribute fluctuations to the regular volatility in our operating markets.

And then just last quarter, you talked about, again, strong cash flow, and you've obviously just guided to strong cash flow of $300 million for 2024. John, when we think about the strategy around acquisitions, I know the last quarter you talked about, look, there's kind of a sweet spot for us, tuck-in and some other things. But maybe can you just update us on how you're thinking about capital allocation and how you're thinking about any kind of potential strategy around acquisitions in '24?

Yes, Lisa, good morning. We are continuing to do a lot of work to understand those market dynamics and what's in the pipeline for consideration as we move forward. I think one of the biggest things, Mike and I have talked about, we talked about it on the last quarter call as well is being very disciplined in the approach that we take. We are looking at things both strategically and economically. It must meet those hurdles on both ends as we're looking at that. We're going to kiss a lot of frogs before we find a prince in that process. And we really pride ourselves in the discipline that we adhere to as we're looking at that. There aren't many books that are out there that we don't get a look at. We have been very active in our corporate development process and the ability to take a look at opportunities, but we apply that discipline, and we're going to continue to do that. As we've talked about before and as we outlined in the third quarter and the press release coming in the fourth quarter, we exhausted the $250 million of the original authorization. We have an additional authorization of $250 million for share repurchase. We will continue to balance that priority of maximizing the value to our shareholders and whether that's through deployment for M&A or whether it's through continued share repurchase as well as from our investments into our business as part of our normal flow of CapEx. We will continue to balance across those dimensions and maximize the value for our shareholders.

Great. I appreciate the comment.

Thanks, Lisa.

Thanks, Lisa.

Thank you. One moment for our next question. Our next question comes from Pito Chickering with Deutsche Bank. Your line is now open.

Good morning, everyone. I appreciate you taking my questions. Looking at the midpoint of the 2024 guidance, if we disregard the $34 million procurement benefit, the EBITDA guidance shows about 11.8% growth. Are there any one-time events in the upcoming year we should consider as we look towards 2025? Will the procurement benefit completely stop on January 1st? Regarding chronic conditions, what new therapies did you mention? Are there any therapies we should be cautious about? In terms of chronic conditions, we experienced significant in-patient liquidations in 2023. Do you expect that trend to continue into 2024?

Thanks, Pito. I appreciate your question, which has multiple parts. As we look into 2024, one positive aspect is that we won’t face the challenges from last year, particularly with the exit of certain respiratory therapy assets. This makes our growth narrative much clearer and easier for everyone to understand. However, I want to point out that growth may be slightly slower in the first half of the year because we had revenue from Makena and Radicava during that period. Overall, though, the outlook is significantly clearer moving forward. So, to sum it up, there aren’t any major variables for you to consider in your models.

Yes. And Pito, on the chronic side and some of the therapies that we outlined, we continue to see strong progress from our commercial team. Our focus around reach and frequency and making certain that we are developing those relationships and deepening them with our referral sources continues to be a high priority and an execution path for the team. We continue to see a focus by the payers around thinking about site of care and making certain that they're maximizing wherever they can achieve high-quality care at an appropriate cost in a setting in which patients want to receive it. So we think that the market dynamics will remain strong for us on that and we're going to continue our execution path of being that partner of choice and being able to onboard those patients and continue to provide them care.

And Pito, the only thing I'd add is, look, specific on your question around any positives, negatives. Look, there's always going to be some incremental therapies that we're looking at. I wouldn't say there's anything in the hopper that I would say is a major needle mover in the first year. And on the negative side, look, and we've had this conversation with folks repeatedly, this is a dynamic marketplace, and there's always therapies that will be going subcutaneous that will have different delivery methodologies. And that's all something that we're never surprised by that and that's fully accommodated in our guidance range.

Okay, great. And then sort of John, a follow-up to the payer commentary. Are you seeing any different behavior from the payers that own infusion companies? So CVS, Aetna or obviously United and now Elevance with their infusion. Have you seen any changes in how those referrals are changing now that there's maybe have their options as well? Thanks so much.

Yes. They are strong competitors, and we consider that fully as we engage with the marketplace. One of the key aspects we offer to the payer community is consistent care. We have previously discussed our national capability to utilize our platform to deliver high consistency and quality of care, whether the patient is in Portland, Oregon, or Portland, Maine. This ability to provide consistently high-quality care across the nation is something that payers value. We have worked diligently to ensure that we are in-network with those payers, focusing on key areas such as delivering high-quality care, providing access to their members, and achieving high satisfaction among members or patients when we serve them. We fully recognize the competitive landscape in which we operate. However, we offer a highly valuable service, especially when considering the range of products we can provide for both acute and chronic needs. We will continue to strengthen those relationships and remain a preferred partner for the plans as they seek quality care options for their members.

Great. Thanks so much.

Thanks, Pito.

Thanks, Pito.

Thank you. One moment for our next question. Our next question comes from Brian Tanquilut with Jefferies. Your line is now open.

Hey, good morning guys. I guess my first question, maybe sort of a follow-up to Pito's question. As we think about, Mike, the kind of like the normalized growth rate going forward, obviously, there are a few moving parts for 2024. How are you thinking about how investors should be modeling or thinking about your growth going forward and what those drivers should be?

Yes, Brian, thanks for the question. Look, the way we've consistently articulated what we view as a reasonable way to think about the growth horsepower of this platform is we see this as a high single-digit top-line enterprise. That's on a broader market growth. And I know you asked 15 people what they think the infusion market is growing. You'll get 20 answers. But as we look at the therapies in the areas of focus, we see this industry growing in the mid-single digits, call it, the 5% to 7%. We think with our unique platform and competitive strengths, we think folks should expect us to consistently deliver in the high-single digits on the top line. Given the scalability of the platform and the investments we've made, we think we can consistently deliver leveraged growth. And on an organic basis, that should manifest in low double-digit earnings growth as kind of a medium-term growth outlook.

Got it. And then during the quarter, it's clear that the G&A line was very well managed. So as we think about that, right, I think some of that is probably the benefits from your infusion suite strategy. So how should we be thinking about the remaining opportunity to open infusion suites and to offset expected gross margin compression from just the growth in chronic?

Yes. Look, I'll start and let John jump in. Look, we fight for every dollar and we always have and we always will. With spending actually coming down versus the prior year. Admittedly, we did move some of the investments, some of the more discretionary investments, new programs earlier in the year as we knew that we had some margin favorability. Of note, in the fourth quarter, that does have some year-over-year burden from the 20 or so infusion suites that we opened during the year. And again from a P&L geography, the cost of those facilities resides in SG&A, the rent utilities, insurance, et cetera. The benefit through the nursing leverage actually is in the gross margin line. So with the SG&A as we reported, it has the gross increase from the infusion suite investment, but the benefit is actually north up in the gross profit line. So look, we're going to continue to drive leveraged growth at the SG&A line, and a lot of the results in the fourth quarter beyond some of the intra-year timing are the efficiencies. And as John mentioned, the investments in technology and automation, which has manifested in much more efficient spending.

Yes, and the only other thing I will add, Brian, is on the infusion suite side, continued really great progress by the team of opening the new facility. As we've talked before, we do a thorough analysis when we're looking at the market, we look at density maps of patient populations, and we're really selective in the way that we're looking at where we place them and how to utilize them. In the quarter about 30% of our nursing interventions were done in one of our infusion suites with that growing population of chronic patients, as well as our ability to serve some of the acute patients that may need a dressing change or a lab draw or those types of things, we're going to continue to maximize that as we move forward. So as we built out the network, we're getting closer and closer to having the fullness that we want there. We'll continue to make investments on that. But I would set the stage that that may start to slow as we're then utilizing and optimizing the infrastructure that we have. We added over or almost 100 chairs over the year. And so now the trick for the team is really to focus around the execution of utilizing capacity that we have there as we continue to build out probably at a bit slower pace than what you've seen over '22 and '23.

Awesome. Thank you.

Thanks, Brian.

Thank you. One moment for our next question. Our next question comes from Matt Larew with William Blair. Your line is now open.

Hi, good morning. Wanted to ask about kind of the other piece of the gross profit line beyond procurement, which could be labor costs and maybe a sense for what your expectations are in 2024? And sort of within that question, maybe an update on how Naven Health is helping you better manage your labor needs?

Hey, good morning, Matt. Look, as we've tried to be as transparent as possible, and again this isn't binary, in the fourth quarter as expected, we saw that transitory situation that we tried to be as open as we could from a competitive perspective. It pretty much dissipated down to nothing by the end of the fourth quarter. And so look, it was real. It was a great milestone for our procurement team who we think are the best in the business. And look, part of it is our direct relationship with manufacturers and biopharma that John talked about in the prepared remarks. Going forward, we are always looking for coins in the sofa cushions, and the procurement team is constantly looking. And as we've said, there's always procurement puts and takes that typically net in a typical year to a modest tailwind well below the numbers we talked about in 2023. And I think that's kind of how we're expecting 2024 to shape up. So, I mean, it was great while it lasted. It manifested in real earnings and cash in the bank, and the team gets off, dust off and looks for those next opportunities.

Yes, Matt, it's John. On the Naven standpoint, again, continued really great progress from that platform standpoint. We've made investments into the technology that continues into 2024. We're really excited about some of the efficiencies and effectiveness that that can help to maximize the capacity and the utilization of that workforce to support not only Option Care Health but other market participants from that platform. That has been part of our overall growth story, is the ability to have access to highly qualified nurses to be able to oversee the infusions and oversee the care for our patients is something that enables us to continue to grow. So a lot of focus, not only internally on Option Care Health, around recruiting our team members every day of recruiting and creating a great place to work. But then also the investments that we're making in Naven will allow us to have that additional capacity and that additional growth driver for us as we move ahead. A question that has been asked before is from a turnover and from that standpoint, just across the board, we have seen a significant improvement really from '22 as we exited '23 around our retention rates and reducing of overall turnover. We do a lot of work to focus around the employee value proposition and we have a really great dedicated team of HR professionals that are thinking about what are the total rewards and what are the type of programs to not only invest in our people to help them develop and grow in their roles and responsibilities, but also the culture and those aspects that make it a great place to work. So as I announced in my prepared remarks, I am really excited about some of the designations that we were awarded in 2023, and we know that as much as we invest in our technology, we are a people business. We need highly skilled clinicians and we need highly skilled professionals across our organization, and that will continue to be a top priority for me and the leadership team to make certain we're doing everything we can to be an employer of choice.

Okay. Thank you. And then the follow-up is on G&A. Obviously, down nearly $10 million sequentially in the fourth quarter and down year-over-year. I just want to make sure we have the right sort of jumping-off point, if there were any one-time benefits in that quarter, if there's anything from the fourth quarter to the first quarter with respect to incentive comp reset or other dynamics. We've kind of given us the procurement piece on the gross margin line, but anything to think about as we model out G&A for the year?

Yes. Not so much, Matt. It's a good question. Some of it has to do more with the fourth quarter of '22. Remember, we had a respiratory therapy business that did have some SG&A burden that obviously went away as we rightsized from that. We scaled a little bit and shifted some dollars after we exited a couple of therapies. But for the most part, I think it's a pretty clean jump-off.

Okay, thank you.

Thanks, Matt.

Thank you. One moment for our next question. Our next question comes from David MacDonald with Truist. Your line is now open.

Hey guys, good morning. I apologize if a lot of these were asked. My call dropped for a minute. But just a quick question. I wanted to ask about just the durability of profitability improvement given kind of the ongoing growth in chronic relative to acute. It sounds like you guys aren't expecting anything meaningful in terms of percentage growth between acute and chronic in 2024. I was wondering if you can talk about the ambulatory infusion suite footprint. And as that matures, is your labor productivity further improving from either increased utilization of existing? I know you guys have kind of talked about a roughly 10% lift historically built better than that. But just wondering if you could comment on that?

Yes, good morning, Dave. As we've discussed, there are some challenges regarding our projection of 10% labor productivity from these investments, which may seem a bit cautious. Just to remind you, we have recently embarked on our aggressive expansion strategy for infusion suites, and we've been at it for just over two years. In some of our more established centers, we're already seeing clinical labor productivity exceeding 20%. We're not incurring extra costs for travel time, and with many therapies, we’re able to infuse multiple treatments at the same time. The earlier phases of our expansion, which are only about two years old, are still growing significantly, and those centers still have remarkable capacity available. Our aim is to enhance labor productivity, which not only improves our margins but essentially adds 10% to 20% more nursing labor units. This is why we emphasize this strategy so much. Additionally, it not only benefits us through economies of scale but also through economies of scope, as we consider other therapies like infusables that need healthcare professional supervision. This creates a strategic platform that makes therapies viable in the suites, even those that wouldn’t justify sending a nurse several hours to administer, thus benefiting our portfolio management.

Yes. The only other thing I'd add, Dave, is certainly along the questions that you asked for the infusion suite and utilization and helping to drive that. We also focus a lot around just the productivity of our entire labor force, right? So we're always working through and looking for the ability to drive that productivity and efficiency across the platform. And we talked before about some of the deployment of the technology, both in the prepared remarks, but in previous comments around repetitive process automation and efficiencies to really help our teams take some of the more routine and road aspects out and drive higher productivity and efficiency across the platform. And we'll continue to focus on that in '24. We believe there's still opportunities for us to drive those operating efficiencies. And with every deployment of technology or the releases that our technology team is putting into the environment, we're looking for ways to maximize the licensure of our workforce and the capabilities and capacity of the workforce. And we'll continue to do that unrelentingly because we know there's opportunities to take cost and waste out of the process.

And then I guess just kind of to follow up on the ambulatory infusion space. Is there a specific breakpoint? It looks like almost 18 months before you start to see that 10% lift start to drift higher towards the 20%? And then it sounds like you've obviously meaningfully expanded the footprint over the last couple of years. As it sounds like that slows a touch and you guys got get more fees. Is there any reason to think that the overall book just because you'll have fewer new starts, so to speak, should continue to lift higher in terms of nursing productivity?

Yes. We have a disciplined approach to our model with clear expectations regarding utilization and adoption. This is why we don't rapidly open a large number of centers; instead, we are methodical, ensuring that local operations and commercial leadership are responsible for filling these centers. Typically, by the first anniversary, most centers reach a break-even point where nurse productivity covers costs like rent, insurance, utilities, and other operating expenses. Usually, within 18 to 24 months, they start generating a net profit of around 10%. Some centers have progressed quicker, but we ensure they adhere to our expected growth trajectory. Conservatively, after the second anniversary, many centers are close to a 20% increase in productivity. As John mentioned, we opened 20 new centers in 2023, and we still have significant capacity in the approximately 170 centers we operate nationwide. Our ability to leverage and create value doesn’t solely depend on the number of new openings each quarter. With our extensive national network of 170 centers, our focus also includes enhancing utilization within our existing locations. At some point, we will reach a comfortable capacity, but we are not constrained by capital. If we identify opportunities in local markets, we are ready to swiftly open additional centers.

And then, just one last question. Earlier, you mentioned your discussions with payers. I'm interested to know if there has been a willingness among payers to implement stronger site of service redirection measures, whether that involves plan design or something else. Additionally, regarding the regulatory infusion suites, do you see potential opportunities for non-infused drugs, perhaps some injectables that require nursing support? Any insights on this would be appreciated.

Yes, Dave. So the conversations that we've had and continue to have with the payer community around site of care, I would say, there's a broad range of those conversations. We are seeing certain circumstances where some of the payers are directing with a little bit more heavy hand, the utilization of these lower sites or lower-cost of sites of care and putting that into the way that they're managing their membership. I wouldn't say that's widespread across the entire industry, but we are starting to see that uptake in local pockets or some of the more regional players on that. So, we're trying to stay ahead of that. We are in active conversations, and we believe that with some of the focus around medical loss ratios, especially in some of the capitated programs that the payers are dealing with, we offer a really valuable solution to them of offering that high-quality care at a more appropriate cost than some of the other settings in which the patients could receive it. So, we expect that that will be an impetus for us to have those conversations, and we're going to continue to talk about the values and the virtue that we can bring to them through that process. The second part of your question, we are doing that today, Dave, where again, we take a look at the portfolio within the infusion suite itself, where there are either products that may not be infused, but they may be injectables that require a healthcare professional oversight. We are doing those in the infusion suite. One of the products that I called out, the Cabenuva, is a product that really fits within that category that requires that HCP to provide that oversight. And we'll continue to look for those opportunities and continue to partner upstream with biopharma as being a channel partner for those types of products, as well as continue to discuss the cost value of being able to provide care to their members, to the payers and why they should help to choose that as a site of care as they're moving forward.

I guess, John, the better way to ask that would have been just in terms of the growth around that kind of the non-infused product. Are you seeing any kind of meaningful acceleration, increased acknowledgment of the services that you guys provide, increased appetite from the manufacturers, et cetera?

Yes. It's incorporated in the guidance that we provided. I mean, there's some positive aspects of that. But nothing that I'd say is a major needle mover on that or disproportionate. But we're going to continue to look for every opportunity we can to, as Mike said, build the chairs and utilize the capacity that we have in an efficient and effective way.

Thanks very much.

Thank you. One moment for our next question. Our next question comes from Joanna Gajuk with Bank of America. Your line is now open.

Hi. Good morning. Thanks so much for taking the question. So, I guess first, the follow-up, just to clarify. So, you said the procurement benefit was $8 million. So, this sounds like maybe a little bit less than what you were expecting. So, I guess, is that right? And then why is that? And also, can you remind us what was it for the full year? And also with that, do you still assume like zero benefit in January or in Q1?

Good morning, Joanna. Yes, it's Mike. In my prepared remarks, I mentioned that we estimate, and again, this is an estimate because patient times vary across different payers with multiple codes, resulting in some being ASP and others AWP. To the best of our estimation, we had approximately $8 million of benefits in the quarter. When you look at the $425 million we reported, our estimate shows a total benefit of roughly $33 million to $35 million. This benefit doesn't appear on the first day of the quarter or disappear on the last day; it dissipated throughout Q4 as we anticipated. As we discussed on our Q3 call, using roughly a 390 jump-off point while normalizing for transitionary benefits seems like a logical baseline. There are no specific benefits entering 2024, marking it as a clean break.

Thank you for that. It seems related to your earlier point about 2024 being a more normalized year without major headwinds or tailwinds like in 2023 due to exiting certain businesses and the disappearance of some therapies, even though there was a benefit from procurement. In 2024, there might not be similar conditions. However, there are a few developments in the market, such as a biosimilar for one of the infusion drugs to Tysabri. I'm curious about how significant this might be, or if it will even out since new therapies might come into play. Additionally, regarding Entyvio, I understand the manufacturers are working on subcutaneous formulations. I'm wondering if these will launch in 2024, or if we should expect them later. Specifically, what are your expectations for these launches and their impact on your business? As you noted about using subcutaneous formulations for injectables, will Entyvio focus on these formulations in those areas? Thank you.

Joanna, we emphasize to investors that this market is very dynamic and not a static portfolio of therapies. The treatments we will introduce to patients in 2024 are significantly different from five years ago, and they will likely differ even more in five years. Our business development team maintains close communication with manufacturers, so no new administration methods or filings come as a surprise to us. Regardless of whether we're looking two months or twenty months ahead, we continuously strive to anticipate market dynamics. We regularly engage in discussions with the manufacturers you mentioned regarding their products. We fully expect and have included in our guidance therapies that will transition to subcutaneous administration or will have biosimilar competitors. We are always proactive in this regard. Moreover, when a therapy is converted to subcutaneous administration, it's important to review the labels, as some may still require oversight from healthcare professionals. Even if oversight is not required, they still fit into our clinical model, although possibly with different economic implications. We are consistently anticipating these developments and integrating them into our commercial and operational strategies.

Thank you. If I may, last follow-up, I guess, on the commentary around very strong cash flow you still expect for '24, obviously, there's a year-over-year headwind of the termination fee that you got in '23 that's not going to repeat. But when it comes to acquisitions, any latest updates in terms of things that will be of interest? How far away are you willing to veer off of the core home infusion business? Any considerations for maybe expanding the drugs that you deliver, say, I mean, we talk about the injectables, but maybe more of the oncology track. So, any color of things kind of you're looking at would be good to hear?

We're consistently concentrating on growth. We believe that enhancing both our revenue and profit is an effective way to generate value for our shareholders, whether through organic means by leveraging our capabilities to expand our range of therapies or by pursuing an acquisition strategy. We've made efforts to address concerns and clarify our corporate development strategy, emphasizing that simply increasing cash flow doesn’t set a lower standard. John has emphasized that our initiatives need to be both strategically and economically valuable, which we can clearly communicate to our shareholders. We're actively pursuing this and will maintain a disciplined approach. There are many opportunities available, and although we won't disclose our detailed strategy, we intend to be patient. The good news is that we expect our core business to perform well this year according to our guidance, so we don't feel pressured to make a deal just for the sake of making one. Given our financial position, we're in a strong place to move forward, and as John mentioned, we also have the option of a share repurchase authorization, which offers another way to return value to our shareholders.

Thank you. Thanks for the questions.

Thank you, Joanna.

Thank you, Joanna.

Thank you. One moment for our next question. Our next question comes from Jamie Perse with Goldman Sachs. Your line is now open.

Hey, thanks. Good morning. John, you rattled off a number of therapies that are driving chronic growth at the moment. Can you spend a little more time on a few of those, the faster growing or larger categories? And where you think they are in their own life cycle? What visibility that gives you for chronic growth over the next couple of years? And just your sense of innovation upstream with biopharma for infusible drugs.

Yes. So, in prepared remarks, I called out some of the products that we had launched. We had talked about VYJUVEK in previous earnings calls as well as Cabenuva. I wouldn't say these are outsized growth proportion on it. We feel privileged to have the partnerships that we do with an organization like Crystal and helping to be a channel partner to serve their patients or patients that require their gene therapy. Across the entire fleet on the chronic side, again, we continue to have a very diverse and broad portfolio of products there. And as Mike just called out, they don't move in tandem. We have things that are moving up. We have things that are moving down. It's a dynamic environment there. What we really appreciate and what we continue to hear and work with the biopharma partners is around the platform that we're able to provide. That high-quality clinical knowledge and know-how, the logistics and the national platform in which we can serve patients and that ability now to have an expanded capability set to not only serve patients in the home, but in one of the infusion suites, all puts us in a really strong position to continue to work with biopharma to be a channel partner and to be able to continue to expand our list of limited distribution drugs or expand the list of products that we have within our portfolio. So, the focus of our business development team is around those relationships of continuing to focus around maximizing the value of our platform. And we'll continue to look for those opportunities with new and emerging products. As the second part of your question, we're actively managing and monitoring what is that pipeline of new products. What of those products have the characteristics that fit well within our platform, and are active in conversations with those biopharma partners around the role that we can play in helping to support the launch of those products, the support of existing products and the ability to serve the patients in one of the settings that our clinical team is well equipped to serve.

Yes, Jamie. For competitive reasons, we're somewhat hesitant to share specifics. What I can say is that it wasn't just one drug or one code; it was a combination of a few therapies that have disappeared. We always have some safeguards in place, and last year we faced some procurement challenges with certain nutritional therapies. Our team does its best to address these issues. Regarding biosimilars, no two events are identical. From our viewpoint, this situation usually isn't negative. We offer therapy and bill payers based on different pricing structures. As competition increases in this category, we often see pressure on pricing over time, which can negatively impact our revenue. However, having multiple manufacturers can shift the procurement leverage in our favor, allowing us to potentially increase our gross margins. Overall, this situation impacts our revenue more than it does gross profit dollars. In terms of supply chain risk management, it typically reduces risks, and since we have direct relationships with nearly all manufacturers, we can quickly respond as payers adjust their formularies.

Okay, great. I'll leave it here. Thank you.

Thanks, Jamie.

Thanks, Jamie.

Thank you. One moment for our next question. Our next question comes from Michael Petusky with Barrington Research. Your line is now open.

Good morning. I was concerned that you might be tired of answering procurement questions from me. Let me ask one more quickly. The 33% to 35% range, as you have been discussing this issue throughout much of '23, Mike mentioned that typically in a more normalized year, you do receive some tailwind due to your scale and contracts. Can you explain what that number has historically looked like? Is it around $5 million, $10 million? What is the usual procurement tailwind for you in a more normal year?

I mean, it's probably in the zip code, Mike. I mean, again, there's puts and takes every year. On the scale that we have, it's somewhere in the zip code of what you articulated.

Okay, great. And then just one more quick question. In terms of your guidance for 2024, has your methodology for determining it become more aggressive, or has it remained consistent with how you've approached initial guidance in previous years?

Okay. Look, I think it's not lost on us that we've built a reputation of laying out expectations that we have a high degree of confidence going into the year that we can deliver. And our track record is one that we're proud of. We have a very robust process, looking at a number of dynamics that as we get bigger, there's a little bit of a bigger range from a plus/minus perspective. But the fundamental approach of we approach communicating our expectations for the year has not changed.

Excellent. Thanks, guys. Congrats on a great year. Thanks.

Yes. Thanks, Mike.

Thanks, Mike.

Thank you. I'm showing no further questions at this time. I would now like to turn it back to management for closing remarks.

Thank you all for joining us this morning and participating in our call. As we outlined, 2023 was a very productive year, and our team continued to execute at a very high level. We understand the important role that we play in delivering care to our patients and their families, and we look forward to serving even more patients in 2024. Take care and have a great day. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.